U.S. service industries cool after growing most in 10 months

Service industries in the U.S. expanded in January at about the same pace as the prior month, showing the biggest part of the economy is holding up in the face of federal government budget battles.

The Institute for Supply Management’s non-manufacturing index cooled to 55.2 last month from a 10-month high of 55.7 in December, the Tempe, Arizona-based group said today. Economists projected the gauge would ease to 55, according to the Bloomberg survey median. Readings above 50 signal expansion.

Sustained consumer spending and a rebound in housing will probably keep benefiting companies such as MasterCard Inc. and PulteGroup Inc., helping propel service industries that account for almost 90% of the economy. A measure of services employment climbed to an almost seven-year high, underscoring a job market that will provide households the wherewithal to manage a two percentage-point increase payroll taxes.

“There’s not really any evidence that we’re seeing a slowing,” said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado, who correctly projected the figure. “The biggest takeaway is how strong the employment component is.”

Estimates in the Bloomberg survey of 76 economists ranged from 53 to 57.5. The index, which includes industries ranging from utilities and retail to health care, housing and finance, has averaged 53.5 since the recession ended in June 2009.

Eight non-manufacturing industries, including construction, finance and real estate, reported growth in January, while nine said business contracted.

Services Hiring

The ISM’s employment gauge jumped to 57.5, the highest since February 2006, from 55.3 in the prior month, today’s report showed. The measure of new orders decreased to 54.4, the lowest since April 2012, from 58.3. The gauge of business activity dropped to 56.4 from 60.8.

In China, service industries may be on the mend. They expanded last month at the fastest pace since August as gains in retailing and construction helped drive a recovery. The non- manufacturing Purchasing Managers’ Index was 56.2 in January after 56.1 a month earlier, the Beijing-based National Bureau of Statistics and China Federation of Logistics & Purchasing said in a statement Feb. 3.

U.S. service industries are poised to benefit from manufacturing that’s starting to emerge from a slump in the second half of 2012. The Institute for Supply Management’s factory gauge advanced to a nine-month high of 53.1 in January, the group reported last week.